AHA: Delay Site-Neutral Rule to Address Medicare Fraud Risks

August 30, 2016 - The American Hospital Association (AHA) has asked CMS to delay the implementation of proposed site-neutral payments for another year because the payment reform rule could increase a hospital’s Medicare fraud and abuse risks.

Site-neutral Medicare reimbursement rules would put hospitals at risk of violating anti-kickback regulations that prohibit hospitals from providing free goods and services to referring physicians, argued the legal analysis from Hogan Lovells referenced in the AHA letter.

“If adopted, these ‘site-neutral’ payment rules would force some hospitals into new financial arrangements with referring physicians that present substantial compliance risk—and the very real potential for investigation or prosecution—under the federal fraud and abuse laws,” the law firm wrote.

“Were CMS to adopt the proposed rule, hospitals and treating physicians would be forced to choose between the substantial legal risk of entering into altered financial arrangements subject to scrutiny as well as potentially significant financial and criminal penalties under the fraud and abuse laws, on the one hand, or disrupting the delivery of patient care on the other,” added representatives at Hogan Lovells.

On January 1, 2017, CMS plans to implement site-neutral payments for services furnished at some off-campus provider-based departments, or hospital outpatient departments. Rather than reimburse hospitals under the Outpatient Prospective Payment System, the federal agency will pay providers under the Medicare Physician Fee Schedule for the majority of services performed at the off-campus provider-based department.

The legal analysis stated that the proposed payment reform rule would classify off-campus provider-based departments that opened, or changed service lines or locations, in the past 10-months as physician-owned clinics for claims reimbursement purposes.

However, hospitals would remain responsible for all operational factors, such as staff, equipment, and facility maintenance, even though Medicare reimbursements would be paid to the treating provider, who would be independent of the hospital.

Representatives at Hogan Lovells believe that the provider-payment structure under site-neutral rules present significant Medicare fraud and anti-kickback risks, especially since CMS maintains that “providing items or services to a physician of any value greater than $396 in a calendar year (adjusted annually for inflation), or leasing or providing office space, equipment or services to a physician for less than fair market value, can trigger the referral and billing prohibitions of that statute, regardless of intent.”

Medicare auditors may find that hospitals are providing free benefits to referring providers through the new payment arrangement, the law firm stated. Before the proposed payment reform, providers would be reimbursed at a lower rate when they performed services at hospital outpatient departments because the hospital is paid for overhead expenses.

Under site-neutral payments, providers would be paid by Medicare to cover healthcare costs at off-campus hospital outpatient departments as if the provider operated the facility.

“Thus, under CMS’s proposal, hospitals would provide physicians the completely free benefit of reimbursement for HOPD services for which they paid nothing,” wrote the law firm. “Community physicians would effectively receive this benefit from the hospital every time they are paid by Medicare for providing services in an HOPD affected by the proposed rule.”

Hospitals would also not have enough time to develop financial arrangements to avoid Medicare fraud risks without interrupting patient care, the legal analysis added.

“If the proposed rule is adopted, in the short time before its January 1, 2017 effective date, it simply would not be feasible for most hospitals to make wholesale changes to their existing HOPD clinical care arrangements,” stated the law firm. “Thus, if hospitals attempted to keep the affected HOPDs open, they would find themselves between a rock and a hard place, choosing between potential fraud and abuse risk and disruption to patient care.”

As part of the wholesale changes, hospitals would need to quickly restructure existing provider contracts to address potential Medicare fraud situations. However, hospitals may face several operational challenges to rapid contract changes.

Re-contracting payment arrangements with providers may be more difficult because providers are becoming the recipient of Medicare reimbursements. Providers would have more power to “to pay as little as possible for the items and services being provided by the hospital, potentially even less than fair market value.”

CMS and the Office of the Inspector General also limit the number of times and circumstances in which hospitals are allowed to change clinical contracts. Healthcare fraud prevention regulations mandate hospitals to established compensation terms in advance and CMS maintains that provider payment arrangements must remain in place for at least a year after any contract amendments. Some hospitals may not be able to renegotiate with some providers who have had their compensation contracts recently amended.

Additionally, representatives at Hogan Lovells said that the proposed site-neutral payment rule may cause hospitals to violate healthcare fraud prevention regulations that require hospitals to refrain from paying providers for “services that the hospitals do not reasonably need, or pay physicians to provide services that the physician is already required to provide on his or her own.”

To qualify for Medicare reimbursement, off-campus hospital outpatient departments must have a physician or advanced practitioner physically present to supervise the majority of therapeutic services at all times. The proposed rule, though, would allow hospitals to bill treatments as physician services, meaning the provider would assume responsibility for supervising care.

The shift in supervision may spell trouble for many hospitals, the legal analysis stated. Hospitals would have to maintain supervision contracts until rule becomes effective in 2017 and allow for the contracts to expire as scheduled. Some hospitals could be paying providers for supervision well after the rule goes into effect, even though the providers would be required to supervise their own care.

Other payers, including additional CMS-run programs, may also have different supervision rules that require hospitals to continue provider contracts, the analysis stated.

“But the rules that will be used by other payers, especially federal healthcare programs such as Tricare and Medicaid, may not immediately be clear, and between confusion over the relevant payer rules and risks in terminating existing contracts, hospitals may be stuck with paying physicians for supervision under their current contracts, even where CMS would now pay the physicians directly for some portion of those services,” the firm wrote.

CMS has recognized potential Medicare fraud situations under the proposed site-neutral payment rule and it intends to change how off-campus hospital outpatient departments are paid by 2018. However, until CMS releases potential alternative reimbursement structures, many hospitals could be facing costly and time-consuming Medicare fraud cases in the coming year.

“Because CMS cannot finalize its proposal without forcing impacted hospitals to accept significant compliance risk, it must delay the implementation of the site-neutral policies in the proposed rule by at least one year,” Tom Nickels, the AHA’s Executive Vice President, wrote in the letter to CMS.

“This delay would provide the time necessary for CMS to develop a fair and flexible payment policy under which hospitals would be able to receive direct payment for their non-excepted [hospital outpatient departments] and for non-excepted items and services that they furnish in excepted HOPDs.”

Dig Deeper:

• Will Site-Neutral Payment Reform Rule Cause Hospital Closures?

• Preparing the Healthcare Revenue Cycle for Value-Based Care